Kotak Fund says realty stocks too expensive

By Prashant Mehra and Narayanan Somasundaram

MUMBAI (Reuters) - India's real estate stocks are too expensive following a sharp rally since March, making it hard for real estate funds to close deals, despite sitting on a pile of cash, a senior official at India's Kotak Realty Fund said.

The fund, a unit of Indian lender Kotak Mahindra Bank, says home prices have bottomed but office and retail space will see more pain as supply outstrips demand, its Director Vikas Chimakurthy, told the Reuters Global Real Estate Summit on Tuesday.

"We won't invest in a listed real estate company at these prices," said Chimakurthy, previously an investment banker at Kotak Mahindra Capital, the former Indian partner of Goldman Sachs.

The fund, which has not invested a majority of the $700 million raised between 2005 and 2008, will instead focus on unlisted firms, he said.

"We believe that most of the listed real estate stocks are overpriced."

Investors could be in for a rude jolt when real estate firms declare quarterly results, said Chimakurthy.

The BSE real estate index has surged almost 1-½ times from its low in March, compared with a record 82 percent fall in 2008, indicating a bubble was rebuilding itself, he said.

In comparison, the main stock index is up about 75 percent from its March low.